How the Rich 200 Invest: Andrew Forrest

In one of the biggest purchases by a Rich 200 member this year, Andrew Forrest has spent $135 million on Fortescue Metals Group shares.

In a series of on-market transactions between June 20 and June 28, Forrest increased his stake in the listed iron ore producer to 32.46 per cent of its ordinary shares. His plan was to spend $294 million but his bankers didn’t get him as many as he wanted.

The value of his stock at the close of trading on June 29 was $4.95 billion when the shares were trading at $4.90.

Forrest’s decision to spend up big on Fortescue may give confidence to other investors who have seen the company targeted by prominent short sellers and hurt by a fall in iron ore prices. (Fortescue shares closed at $6.39 on July 1, 2011.)

It might also be interpreted as a vote of confidence in China, which buys 60 per cent of global iron ore exports. Concerns about a slowdown in China have been largely responsible for the mining sector slumping at a faster rate than the rest of the market.

Fortescue is planning a major production boost in coming years and it needs Chinese demand for iron ore to stay strong.

Critics may find the timing of Forrest’s buying spree in relation to the implementation of the mining tax interesting but his investment is most likely to be a consequence of the time constraints around directors buying shares, his desire to shore-up the company he founded and a belief that the stock was cheap.

It is also consistent with the Rich 200’s golden rules about investing: don’t chase fads or try to re-invent the wheel – if you want to maximise your return, put your money in the asset you understand the best.

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